NW Medical Fights To Cut Cash Shortfall

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‘Region’s Hospitals Battle for Position as Columbia Prepares to Join Warfare’

It’s been a rough year for Northwest Medical Center of Springdale.

Left out of the Arkansas Blue Cross Blue Shield network, the hospital is fighting an uphill battle to get the business of public school teachers and other state employees. The financial rating on its bonds was downgraded by analysts. And for months, rumors of an impending sale have dogged the hospital, reaching such a fevered pitch two weeks ago that hospital officials met with development council members and employees alike to refute the story.

“We are not for sale, and we have not been sold,” hospital president Russ D. Sword says emphatically. “There’s absolutely no truth to any [of those] rumors.”

But Sword acknowledges a $1.1 million operating deficit for the first 10 months of the fiscal year, which ends June 30, and that’s causing administrators to take a hard look at hospital operations, including staffing, which represents 40 percent of the hospital’s budget.

“As far as overall, financially we’re still very strong,” Sword says, adding the hospital has “very, very little debt.”

The deficit, he continues, is definitely “very unusual” for Northwest, but it’s the result of several factors, including cuts in Medicare – about half of Northwest’s patients receive some kind of Medicare benefits – and the advent of managed care into the market.

Stories that Northwest’s operations are dependent on annual contributions from longtime benefactor Bernice Jones or one of the Jones family trusts are not true, Sword says. Mrs. Jones and her late husband, Harvey, were among the earliest supporters, even before there was a hospital in Springdale, he says, and their contributions have helped pay for many capital improvements.

But their monetary gifts have not covered operations, Sword says. The only exceptions have been for specific purposes, as in the case of the chaplaincy program, which Mrs. Jones funded for the first year.

Sword, too, has heard stories circulating in the community that Mrs. Jones reportedly has decided against any further gifts to the hospital, but that’s all he’s heard.

“I haven’t heard from the Jones Foundation,” he says.

S&P lowers bond rating

?Rumors about the hospital’s financial condition may have been spurred last year by Standard & Poor’s decision to downgrade the hospital’s bond rating two notches, from “A-” to “BBB.”

S&P’s report cited reduced cash reserves as well as increased competition, rapidly rising staffing costs and additional capital needs. The report, issued in April 1996, noted the hospital had spent $18 million in cash during the previous three years on major capital projects, including an $12 million medical office building. The $18 million patient tower was financed through the sale of bonds. The hospital is to receive a $2.5 million donation each year until the bonds mature in 2002, according to the report.

Standard & Poor’s also noted the hospital’s rapid business growth from 1991 through 1995, which pressured management to proceed with the capital projects. Reluctant to take on heavy debt, however, hospital administrators choose to use cash reserves to reduce the need for borrowing. Cash reserves were reduced from $10.2 million or 105 days’ cash on hand in 1991 to $1.9 million or 11 days’ cash on hand in 1995.

The outlook for Northwest, according to the report, “reflects the hospital’s limited financial flexibility, along with a downward turn in the income statement. If dividends from large capital strategic investment fail to restore the income statement and balance sheet, the rating would be lowered further.”

Standard & Poor’s reports the rating remains unchanged.

Two-system market emerging

?Northwest Arkansas is blessed with an abundance of hospitals and quality health care, and most care, until recent years, was pay-for-service. With the advent of managed care into the area, however, the region’s four major hospitals have aligned themselves into two separate camps: the Northwest Health System, consisting of Springdale’s Northwest Medical Center and Bentonville’s Bates Medical Center, and the St. Mary’s-Washington Regional Medical Center camp.

Behind the latter alignment are the financial resources of Sisters of Mercy, the St. Louis-based health-care company – a multibillion-dollar company – that owns the Rogers hospital. Together with Arkansas Blue Cross and Blue Shield, the partners have embarked on a joint venture through which they offer a variety of insurance products.

People within the health-care industry often offer widely ranging views on what’s happening and how developments should be interpreted. But on one thing, at least, they agree: Northwest Arkansas has more than enough hospital beds.

But another giant appears poised to enter the NWA market: Columbia/HCA Healthcare Corp., the nation’s largest health-care company.

Columbia, currently in negotiations with the 350-member Northwest Arkansas Independent Physicians Association, has indicated it will have a hospital presence in the area – whether by purchasing or partnering with an existing facility or by building a new hospital of its own.

If Columbia does decide to build, however, some experts don’t see that forcing existing hospitals out of business.

“I don’t see any hospitals closing. The geography says it’s too far,” says Fred L. Ford, president of Unity Health of Arkansas, a joint venture between St. Mary’s and Washington Regional. “None of these [hospitals] are going to close.”

Bates, with 63 beds, is the smallest of the four hospitals, but Ford notes the rapid population growth of the Bentonville-Bella Vista area will preclude that institution closing.

Also, he continues, the area has no oversupply of either primary-care physicians or of specialists.

“You don’t have 50 orthopedic surgeons” all competing for the same business, he says. “This is a boom town. Most of the clinics are still chasing growth. Clinics are still turning away business,” at least in Benton County.

Regional plans new hospital

Washington Regional Medical Center is going ahead with plans to build a new hospital in North Hills Medical Park on a 19.74-acre site that’s north of Appleby Road, east of Gregg Avenue and south of Futrall Drive.

“Administrators at the Fayetteville hospital have been working on the project for several years, and, although no time line has been announced, officials hope construction will begin, in all likelihood, by 1998.

-David Rew, senior vice president for Washington Regional, says administrators have traveled around the country in search of the best existing facilities – and asking people in those systems what they’d change. Hospital officials hope to build a model hospital that will draw interest from across the country and even from around the world. The design is being done by HKS, an architectural firm in Dallas.

Regional already has begun building a new dialysis center in the park, and it is a partner in another existing facility located there – Northwest Rehabilitation Center.

Rew says the new facility is to be designed for the future, to be “friendly, flexible and efficient.”

The facility won’t completely replace the existing campus, however, which sits on property owned by the Department of Veterans’ Affairs. That property is leased to the county with the proviso that it be used as a medical facility.

Rew says several departments will stay behind, including administrators’ offices. No private offices are planned at the new hospital.